All CEO’s are Crooks

March 26, 2009

The failed bankers on Wall Street have been whining that if they have to cut bonuses and salaries dramatically, they’ll be unable to recruit great talent, and they need great talent to fix the situation.

 

And for years, boards have been claiming that they need to pay CEOs $50,000,000 salaries in order to recruit the very best for their companies.

 

Jamie Dimon at Chase said, “It’s possible someone’s going to walk in my office and say, Jamie, I have a family. I can’t afford to live that way.”

 

This, of course, is nonsense.

Seth Godin, author of “All Marketers are Liars”, wrote this week about the myth of big salaries for executives in corporate America.  Seth makes the case that there’s a disconnect between what executives are paid and the value that they bring to the company.  He thinks the reason they’re paid so much is that the market for CEO pay is artificially high because corporations and their boards are trying to attract and keep talented executives simply by offering more money than the competition offers. Seth argues there are ways to market these top jobs other than just throwing more money at them.

Are These CEO’s Crooks?

So are CEO’s that accept these enormous salaries stealing from the shareholders? No, I don’t think all CEO’s are crooks; my title’s just a play on Seth’s “All Marketers are Liars” book title.  I think that the talent and time required to manage these huge businesses to profitability should be rewarded and I can’t blame the CEO’s; if companies are willing to pay that much I can’t fault them for accepting it.

I think it’s pretty standard that most salaries in many public companies are governed by a pretty strict process that entails researching the market and paying employees just enough to be competitive in the market.

What’s the Solution?

So even if the market for CEO pay is hugely over-inflated, what can company boards do to keep and attract talented leaders other than pay the price?  I don’t know the answer to that but I do know that given the current economic meltdown shareholders are much less likely to be forgiving of watching their stock value plunge while CEOs continue to earn millions.

I don’t think government caps on CEO pay are a good idea but if companies don’t start making changes on their own the government may start taking matters into their own hands.  I think it would be wise of corporate boards to reform corporate pay policies themselves so that politicians don’t try and force “one size fits all” regulations on them.  What do you think?

Ben

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Ben
Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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Comments

7 Responses to All CEO’s are Crooks

  • john

    the government I think will tighten the screw down on these larger companies and is happening a little now, I think caps are a great idea, the private sector is just as corrupt or even more so, government wages are up for a reason and more government is what is needed as messed up as that sounds

    example you will hardly ever see a large company centered itself in a small town or rural areas at least not where I’m at, even though they can employ and help a whole community and the surrounding towns, get most people off government handouts, take the stress of congested areas out of people’s lives, but no its a rat race to the short end you can only care so much

    6 comments only four visible seems like we all have something to hide

  • Thunderhardt

    You better have a very good lawyer !!!!!!!!!!!!

  • Thunderhardt

    Michael Scott is my hero. The state of P.A. owes this man so much. They say that behind every man is a greater woman. Jan is a great woman. He is an equal op employer, just look at who he has working for him. Shame on you for degrading such a great man and the company he works for. The man almost jumped off his own office building to prove a point to his employees. He ran in a charity for a rabies cause. I hope to work for this great man someday, and when I do, I will surely bring this slander to his attention !!!!!!!!!!!

  • BD

    I agree with the weakonomist. CEO’s are currently receiving multiples in all phases of compensation instead of percentages of what they should earn. I do not believe that this issue can ever be resolved however.

  • the weakonomist

    I’ve written quite a bit about the issues of CEO compensation. Without linking back to the orginal post on my site, I can say this is pretty much what I’ve come up with:

    CEO pay should be tied to the lowest of the low level employees. A 5% raise would require the entire company to get a 5% raise.

    As for bonuses, they should be a percentage of salary, not a multiple.

    Stock options and awards are perfectly appropriate at this time but should represent no more than 100% of the salary the CEO is earning at that time.

    Being a CEO is like being a president of the US. You do it mostly out of love for what you do and who you serve, not for how much money you make.

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